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2/01/2007

How to find a stock which makes 1500% move in a year

Here is a stock which has gone up around 1500% in last 260 days.That is a significant move.FRPT,Force Protection Inc (GoogleYahooEarningsChart)

What is a significant move in a stock. Assuming you are not a high frequency day trader, then you would define significant move as 5% in a day for individual stock. If you add say another criteria of saying the 5% move should be accompanied by volume increase over yesterday. So lets say 5% move on higher volume is significant. The real reason for this is to find out how many stocks make that kind of a move in a day. Supposing 5% of the total universe of stock on a given day has 5% move, is that significant.Does a one day significant move indicate future returns.

Many of the things which I look at on daily basis and monitor is basically a variation of significant moves on various time frames. A 5% move on individual stock on higher volume with a cut off off 100000 plus volume to me is significant move based on past studies of stock price moves. Similarly a move of 2% on any of the Index is significant. Or a move of 2% on a sector is significant. It is more significant if it happens on higher volume.

Taking the same logic further a 50% move in a stock in a month is extremely significant move. It indicates an aberration. A 25% move in a month in a stock is on a significance scale also very significant.A 25% move in a quarter is significant in a market where the average long term drift is less than two digits. Similarly a move of 100% in a year on a stock is a significant move.

Now if you constantly study significant moves and build an iterative model over a period of time you will probably learn a lot about such moves. A brute force backtesting might give you even greater understanding in to such moves. A combination of backtesting and continuous iteration gives you a live model of what makes a stock make a significant move.

Largely my study of significant moves supplemented by additional insights has helped me understand what kind of stocks are likely to make a significant move for a given time frame. There are factors one can isolate which increase probability of a stock making a significant move. That gives you a significant edge in avoiding the bad or low probability trades.

When a stock doubles in a year it is a significant move. You can say as of this particular time this stock is moving at 100% per annum. You might call it is trending but then you will get in to never ending debate about what is trend and why trends do not exist. So to keep it simple let us say a stock when it makes a 100% move it is significant. And before many of you object saying a low price stock doubling is no big deal, OK use your own cutoff of price you like.

So if you do not want to miss a significant move here is a wicked concept. Some of you who might be interested in making significant return might be interested in studying this concept in detail.

How to find a stock which makes 1500% move in a year

Difficulty: Easy
If you want to beat the market by significant percent track and trade the significant moves in the market.

Instructions:

Use any of your favorite stock investing software. This example assumes excel based system.

Calculate the lowest close for a stock in last 260 days. If a stock has less than 260 days data calculate lowest close for those many days.

Calculate percent change from lowest close and select stocks which had 100% plus growth

Find the highest price in the 100% move and only take stocks which are within 25% of that highest price.

So this is your trading universe of stock which have made significant move of 100% or more and are as of today within 25% of the high during the move

Buy next day with 1% risk and stop below the low of previous two days bar

Trail with a stop

If you get stopped buy again on next breakout

Enjoy your profits

Tips & Warnings:

When you have a choice of candidates to enter, enter the newest member to the list first

If you want to follow technical analysis you will find several cup and handles, double bottom at top of range, W formations, triangles, bull flag, flat bases and all other esoteric patterns.

If you play around with entry techniques you will get better results

You can play around with position sizing and holding a portfolio of around 50 positions with a 2% position each.

All major winners in a year appear on this list. If you follow the approach religiously you will never miss a 1500% move, you will miss the first 100 but you can still capture the 1400%. Unless a stock gaps up 1500% in a day!
There is a catch in this, that is why most people would never trade it.

Bonus:Everyday I will put up the raw data for significant movers in this list, you can pick your stocks from it. Look under "Double Trouble" heading everyday end of day or by next day morning.

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56 comments:

The structural principle behind it is universal and will work in any markets. I have tested it on British and Indian market data. To make it work in the Indian market, you will have to change the volume condition to reflect market liquidity.On a side note, do you really need a system to trade in markets like BSE and NSE which are going parabolic. Even my families passive mutual fund investments in India are showing 50% plus returns. Currently it is just buy anything market.

May I ask, what do you use for the stock scans to pick the stocks for your universe?

The reason I am asking is because I am using stockfetcher.com and I am getting completely different results than you are: my scan only picked up 5 stocks, and 4 of those were penny stocks. The 5th, CYTR, was on your list...

I use the Worden Telechart for market data from that I pull in the data in to a my own custom built software.I think there is a discussion in the stockfetcher forum on how to do it using stockfetcher , the person who wrote that scan has made few assumptions like taking much higher volume, which might be changed. I do not use stockfetcher so I could not respond to that discussion.If you understand the logic clearly, it is easy to do problem is most trading softwares do not have functionalities to do it when stock has less than 260 days data or when you want to calculate the maximum price during the move when it doubled and take 75% of that.In simple matchematics term the equation is

Stock current price is 79Stock is trading for 500 days.In last 260 days the lowest closing price was 10In last 260 day it had a highest close of 100So it went up 10 times.75% of 100 is 75 so it is currently greater than the highest price during the 10 times move.So it will be inuniverse.Now take another stock trading at 80It IPOed 100 day ago.In the last 100 days ( which are less than 260) it had lowest close of 10In last 100 day it had a highest close of 100So it went up 10 times.75% of 100 is 75 so it is currently greater than the highest price during the 10 times move.So it will be in universe.

You mentioned that the only books you need are O'Neil's, Love's and another one. Yet, your selection criteria is completely contradictory to the work of O'Neil and Love. I also suggest the work of Reinganum which was partially sponsored by O'Neil.

Because I have nothing to sell. My books recommendations are for those who asked me for my books recommendation after Kirkreport and Trader Mike linked to some of the postings and got lot of emails asking for recommendation. You don't have to agree with my recommendations and more that that everyone reads what they want to read in a book. So everyone interpretes someones book differently.

I am using Reuters Powerscreener Lite to do stock scanning. I am trying to get a list of the stocks that can make huge jumps in a year and I am using your stepwise procedure (or at least my bastardized interpretation of it!). Powerscreen lite does not have capability to let me get the highest price in the last 6 months – but it will allow you to get the highest price in the last 12 months.

So I tried this: I set up a screen to identify stocks with the following: 1) 4 week price change of at least 15%; 2) 13 week price change of at least 45%; 3) 26 week price change of at least 90%; and 4) current price is at least 75% of 12 month high. I also included criteria to 5) identify stocks having a 10 day volume average of at least 100,000; 6) beta with less than or equal to 1; and 7) minimum price of $5.

The above steps were taken to get stocks with consistent upward performance so that hopefully the most recent prices are at or near the 6 month high.

I just ran this today and got 2 hits: VII and PRGX.

I have 2 questions: 1) Since Powerscreener lite is not able to tell me the 6 month high, do you think it is reasonable to screen for stocks having 4, 13, and 26 week price changes with proportional increases? 2) Do you think a beta value of 1 or less would help me pull out stocks with more consistent price change action? I am figuring higher beta values would mean wilder price swings, and I thought I saw somewhere that wild price swings are not too good because they are less predictable.

A possible problem I see with this strategy is that it may eliminate stocks having a chart that is increasing in the very recent past such as stocks with “exponential” looking chart increases.

Michael The growth rate of 100% is from 260 days low. What you are doing is different. You are calculating growth from a 13 week or 26 week price ago in the Reuters screener. Which will give you very different results. I do not think you can relplicate this scan exactly with Reuters screener.

The catch is very few people want to trade things which will make lot of money. To trade something very different requires conviction and unlearning old established beliefs, which is never easy for most people.

Initial stop:Two component to it 1 below two day low 2 time stop of 5 days. If stock does not move above buy point in 5 days, close position.So position in first five days will get closed if the 2 day low is hit. After I have 20% profit I will move stop to 10% and the process goes on.I might close a existing position, without it hitting stop, if I find better stock. In that circumstances , I try and close the least profitable position by number of days held first. So if there are 5 open position currently and if 1 has made only 10% in 18 days, I will close that first as against the others.

This is on individual position. In addition there is overall total portfolio stop. So when I get signal like say a major reversal, I will close all positions.In market circumstances like current one I have around 3% at risk on total portfolio level. When I am not sure about market direction my risk is generally below 6% of total portfolio. What that means is if all my open positions get closed today, I will lose 3% maximum.So when my indicator stocks up 50% or more climbs above 20, I reduce my overall portfolio risk to around 6%As a general rule stops are a function of the kind of per trade profitability one is looking for and the number of signal the system gives. I use tight initial stop, because I know if the stock does not work in five days, it does not have the kind of momentum I look for. Similarly if it goes below 2 days low, I am not interested. The real winners are profitable instantaneously.

'The catch is very few people want to trade things which will make lot of money. To trade something very different requires conviction and unlearning old established beliefs, which is never easy for most people.'

That is so funny, and so true of human nature. Shades of Jesse's Wisdom.

If you are using Amibroker, the second criteria should actually bePrice today >= .75*highest close during the 100% move.That is the way I do it in my software. If you think about it why it should be that way you will understand it.To understand it better look at a stock like LEND, it is in my 100% plus universe.It has gone up 194% from the Minc260, but if you use the second condition of .75*MAXC130, it will not show up in your scan as it made the 194% move in last 60 days.

So if you use TC2007 to do this, you will get much smaller universe of stock than I get. That is the limitation of TC2007.

I'm getting the following symbols for 100 plus 5%breakout scan:ACH,ASY,BDSI,CRNT,DAR,DSCO,EGHT,HGRD,JADE,ONT,PRGX,SYNL,USEGApart from float and liquidity, what other criteria did you use to narrow it down to DAR and PRGX?

Here is amibroker scan that should work in most of cases as described by you earlier. This could bring stocks like TSL and LEND:

Hi Pradeep:Just happened to land at your site and what a great place to be!

I have Telechart 2007, amibroker and Metastock Version 9.01 and still unable to make any good use of them. Can you suggest a good scan to narrow the field to say about 20 to 30 stocks to trade, using TC2007.Perhaps I can try out your scans in this thread?Thanks

Just came across this blog and is very informative. I have been trying to find out the common trait among multi-bagger stocks and this probably makes the most sense, while i was looking mostly fundamental indicator traits.However, based on your experience, is there parameter like earnings surprise or earnings growth that will improve probability and reduce the universe of the stocks?

Also, just to point out, when a stock makes move from 1 to 11, that is a 1000% move, if you wait until it reaches 2, then we are catching only 450% move (not 900% as we think) - never the less, 450% is good enough for me...

Tks.I have spent six year looking for common fundamental thread in this list. My conclusion is only around 30% of the stocks are driven by fundamentals.The only reason to buy these is because they are going up. That is why it is psychologically difficult to trade.

Hi Pradeep,Just came across this site. Some of the best information I've found anywhere. Do you have a scan in TC 2007 that you use when trading earnings? I've alway used gaps but to get in eariler would be great.Thanks, BC

I've been studying this 1500% move blog entry with great interest for last month or so. It is only today that I finally decided to go further and do a bit of research/experimenting with a screener.

Does those parameters look right to you? I added price >= 5 filter because that'd make me more comfortable. Volume >= 1,000, is that correct? I am not able to do V > V1, so for any results, I will check if volume incrased manually at finance.google.com.

Once you get the candidates you have to sort by 20 days growth or 65 days growth. Take those with less than 10% growth. Say for 65 days growth less than 10% will be (100 * (C1 - C66) / C66)<=10Probably you will have to use one quarter growth less than 10% in that screener you are using.

Due to the limitation of screener you re using, you will not get 100% match to what the system says but , yes you are on right track. You will get 5 to 25 candidate daily matching the criteria.

In field name, choose 52wk high, then type in '/', then click the down arrow and choose 52wk low, operator will be >=, value would be 2 (this will give you stocks up 100%+, 52wk low to 52wk high)In field name, choose Last Price, then type in '/', then click the down arrow and choose 52wk high, in operator choose >= and value is .75 (this will give you stocks within 25% of 52wk high)

For the EP portion, choose:% Price change today, >= and 4%Last volume, '/', Avg Daily Vol Last Qtr, operator = High as Possible (intraday) or >= 2 (100%+ for end of day scanning)

For 1 or 3 month low price movement, choose either % Price Change Last Month or % Price Change Last Qtr and >= -10 (then create a second line the same but <=10) - for this criteria you may want to choose <=15 as price move of EP will be part of the past month or quarter

The screen is implemented daily (can be done either intra-day or at end of day). Here is how I use it:

Take the list of stocks it produces and look at a chart of each one. I am looking for breakouts of bases to new highs. If I find breakouts that look good to me then I do some other analysis (earnings, industry, etc) to decide if I want to buy one of the breakouts.

In field name, choose 52wk high, then type in '/', then click the down arrow and choose 52wk low, operator will be >=, value would be 2 (this will give you stocks up 100%+, 52wk low to 52wk high)In field name, choose Last Price, then type in '/', then click the down arrow and choose 52wk high, in operator choose >= and value is .75 (this will give you stocks within 25% of 52wk high)

Pradeep, One question: Should we not focus on stocks that have "run up" 100% within a year, then "pulled back" 25%? Thereby giving us the best situation for the stock to breakout and run up 25% or more. Regards Mike

I just found this post while searching for finding new IPO's. I'm new to investing and am interested in finding stocks with these kinds of moves. I have downloaded AmiBroker and tried the following formula stated earlier in this post.

I do not use Tradestation but if you understand the lgic it should be pretty easy to replicate it. It just calculates ROC from 52 week low and takes stocks with 100% plus growth and that are within 25% of highest price during that 100% ROC.

Best site to learn to trade

If you are serious about your trading and want to build an enduring edge theStockbee Member site might help you.

Members tell me they have tried lot of things before coming to my site and it has offered them the most extensive and detailed methods to swing and position trade. Members range from very experienced traders to novices.

No advertising, no hard marketing, no promotions, no free offers, no affiliate marketing, no incentive to other bloggers to promote the site, no constant twits self promoting the site and no tall claims, every member comes through word of mouth recommendations from existing members.

As a member you will learn the basics of swing trading, momentum investing, growth investing and risk management.

You will learn how to setup your own scans, how to select right kind of stocks, how to setup stops, when to enter , when to exit, how much to risk, how to track your trades and all other details about trading.

You will learn about developing your own methods and not relying on others for trade ideas. Develop your own edge. Once you develop your own method you will have life long profitable method.The site gives you opportunity to interact with some of the most successful traders and learn from them about their trading methods. It is a vibrant community with members from different background and experience willing to help each other. Members have shared their methods, scans, software, backtests and market insights.

Everyday the emphasis is on continuous learning and up gradation of market knowledge and setup knowledge. The members range from hedge fund employees, financial advisers, active swing traders, investors and new traders.You will see that many trading bloggers have been using my market timing methods and scans and chart templates. They have developed their own methods based on my methods.

Almost every member comes through a recommendation of some of the leading trading bloggers and trading sites. 80% or more members continue to be members for more than 3 years. Most tell me that they stay on because everyday they learn so much from the members site.If you are looking to develop your own trading strategy the membership site might be for you. You have to be willing to put in the effort to build your own method. There are no silver bullets offered on members site. Every method, every scan, every nuance is detailed and all possible help is offered to design your own method.

Every trade I take is documented with position sizing so that you can learn how in real time these strategies are implemented. Several other members also share their trades. If you are just looking for stock picks, the members site is not for you. It is about learning to find your own fish.

If you are serious about your trading and want to build an enduring edge theStockbee Member site might help you.